Living on the financial edge is an all-too-common predicament for many households.
A Bankrate.com survey reports that fewer than 1 in 5 adults has enough socked away to cover their living costs for six months. Six months seem extreme? Well, even though the economy is growing and a low unemployment rate suggests a robust job market, the most recent official data say 20% of people who are unemployed have been out of work for more than six months.
If you don't have an emergency fund, here's how to get started and stay committed:
Think small. It can be a major de-motivator to pencil out how big a three-month or six-month emergency fund would need to be. Don't focus on the end goal. Instead, decide what you can save every week.
Automate. Waiting to see how your spending goes each month and then deciding whether you can afford to save is a recipe for failure. Set up an automatic transfer from your checking to a savings account. It's free.
Use an online savings account. If your online account allows you to customize its name, go for it. That can be a psychological lift. Naming the account EmergencySavingsFund or ReadyForCurveballsFunds can motivate you to keep saving, and not touch the money until there is a true emergency.
Nip and tuck. It would be fantastic if you could magically reduce big-ticket costs. Pull up your latest credit card and bank statements. At each item, stop and ask: Any way I can cut or trim this? A less expensive cell plan. How about the gym membership? Their business plan expects many members will never go. Don't be that sucker.
Gig it. Take on extra work with the explicit intention that every dollar you make goes into your emergency fund. Maybe it's working overtime at your job, or taking on consulting work.
Raises and bonuses. Have a plan before the extra cash hits your bank account. Take at least half a raise and earmark it for raising your retirement savings. If you get a 4% raise, boost your 401(k) contribution rate by 2 percentage points. But if you don't yet have an emergency fund that can cover you for at least three months, maybe split the 2% between retirement and emergency fund.
Heard of FIRE? There's a vibrant community of people determined to spend as little as they can today so they can retire much sooner than 65 or 70. The Financial Independence, Retire Early movement may be too extreme for you, but spend some time on FIRE websites or check out the Reddit FIRE subgroup and see what the buzz is about.
Carla Fried writes for Rate.com.